Because most of the typical economic bases which are taxed to raise revenue to finance governments are unevenly distributed geographically across South Africa and are complicated and costly to collect, the bulk of government revenue is collected by national government. National collection allows government to redistribute public resources across South Africa and to capture scale economies in the collection of revenue. Nationally collected revenue is then divided amongst the different spheres to fill, in some way, the “fiscal gap” that arises because of the difference between expenditure requirement associated with the responsibilities of the sphere and what revenue the sphere is able to raise on its own. Provinces have limited revenue raising powers. At present they primarily rely on motor vehicle license fees, taxes on gaming and some user fees . They can, however, with the approval of parliament and subject to regulatory oversight by national treasury, “piggy-back” off certain national tax bases (as they occur within their areas e.g. petrol sales within their region) or create own their taxes. Local government has greater revenue raising power. At present local government can tax four bases: property value, the turnover and the payroll of businesses operating in their areas and the value of services consumed. Only the property tax is significantly used by local government. Turnover and payroll taxes are widely considered poor taxes in their current form (in fact, the turnover tax may be unconstitutional), and are levied at very low rates, while the surcharge on consumption has not been used to date. Collectively provinces finance only about 5% of their expenditure from their own resources, while local government tend to cover around 85% of their expenditure from own sources. 

The division of national revenue resources into allocations which go to the different governments that make up the spheres, occurs through a two stage process. Firstly, the national pool is divided amongst the three spheres to form three “equitable shares” in a process called the vertical division. The vertical division is a political process – representatives of spheres meet each other in advisory fora which make recommendations to the national cabinet. The recommendations are presented by the National Treasury to parliament in the form of the Division of Revenue Bill for ratification. Secondly, the provincial and local government equitable shares are subdivided into individual equitable allocations, one for each of the provinces and municipalities that make the spheres in a process called the horizontal division of revenue. The horizontal division for each of these spheres occurs according to a mathematical formula – each sphere has its own formula. The equitable share allocations derived from the horizontal division of revenue are unconditional and also detailed in the Division of Revenue Bill and thus require the ratification of parliament. National and provincial departments can also transfer some of their own resources to governments in other spheres in the form of conditional grants – national to provinces and municipalities, and provinces only to municipalities. The conditional grant allocations and the associated conditions are also contained with the DORB and thus subject to parliamentary oversight.